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Common credit under GST with example

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What is common credit?

Input may be used for both taxable and non-taxable supplies in businesses. However, input tax credit (ITC) is available only for GST paid on taxable supplies. So, the portion of ITC that pertains to exempted/personal supplies will have to be removed from the total available ITC. Common credit is the amount available for distribution that arrives after reducing the ITC of taxable supplies from the total ITC. To ascertain the ITC portion related to exempted or personal supplies, common credit will be proportionally distributed.

Steps for calculating common credit

 

Step 1: Compute common ITC available for apportionment.

T (Total available input tax credit)

XXXX

Less: T1 (ITC on inputs & input services that are intended to be used exclusively for personal supplies)

(XXXX)

Less: T2 (ITC on inputs & input services that are intended to be used exclusively for exempt supplies)

(XXXX)

Less: T3 (ITC on inputs & input services which are ineligible for credit)

(XXXX)

C1 (Eligible ITC)

XXXX

Less: T4 (ITC for taxable supplies including zero-rated supplies)

(XXXX)

C2 (Common ITC available for apportionment)

XXXX

 

Step 2: Apportionment of common credit

2.1 Common redit attributable to exempt supplies (D1):

D1 = (E/F) x C2

Where

E = Aggregate value of exempt supplies during the tax period

F = Total turnover in the State during the tax period

C2 = Common ITC available for apportionment

2.2 Common redit attributable to exempt supplies (D2)

D2 = 5% of C2


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TaxGyata Team